Barclays Research discusses GBP outlook and targets GBP/USD around 1.33 by year-end.
"GBP’s close correlation to real, not nominal interest rates, explains its past despondence to elevated rates market expectations for front-loaded Bank of England tightening. Rising UK inflation is undercutting the positive impact of BoE rate hike expectations. The front-end of the UK OIS curve now looks reasonably priced to us. However, rising inflation into Q1 22 should undercut real rate support for the pound," Barclays notes.
"Slowing growth and ongoing concerns about the EU-UK post-Brexit trading relationships will limit the ability for GBP to rally near term. Further out, elevated levels of foreign acquisition and investment in UK assets should provide an undercurrent of support for GBP," Barclays adds.